In 1992, during a visit to southern China, Deng Xiaoping uttered a phrase that would be repeated in geopolitical circles for decades: "The Middle East has oil, China has rare earths." At the time, few took it seriously. The United States was the world's largest producer of these minerals, the Mountain Pass mine in California was operating at full capacity, and no one imagined that those 17 elements from the periodic table — with unpronounceable names like neodymium, dysprosium, and terbium — would become the oil of the 21st century.
Three decades later, China controls about 60% of the world's rare earth mining and more than 85% of its processing. This was no accident. It was a long-term industrial strategy, executed with patience, subsidies, calculated environmental destruction, and geopolitical foresight. This is the story of how Beijing built this monopoly — and how it now wields it as a weapon.
What are rare earths and why do they matter
Rare earths are a group of 17 metallic elements: the 15 lanthanides plus scandium and yttrium. The name is misleading — they are not particularly rare in the Earth's crust. Cerium, for example, is more abundant than copper. The problem is that they appear in low concentrations, scattered and mixed together, and often associated with radioactive materials like thorium and uranium. Separating and purifying them is expensive, complex, and dirty.
These elements are essential to the modern economy. They are in the permanent magnets of wind turbines and electric vehicle motors (neodymium), in smartphone screens (europium), in defense systems like guided missiles and fighter jets (samarium), in oil refining catalysts (lanthanum), and in medical and industrial lasers. Without rare earths, there is no energy transition. There are no modern weapons. There is no technology supply chain as we know it.
Deng Xiaoping's vision: planting to harvest in decades
When Deng made his famous declaration, China was already positioning itself. Since the late 1970s, the Chinese government had identified rare earths as a long-term strategic resource. The logic was simple: China had enormous reserves, especially in the Inner Mongolia region (the Bayan Obo mine, the world's largest), and cheap labor. More importantly, it had something Western democracies did not — a willingness to absorb the environmental cost and the ability to plan over horizons of 20, 30, or 40 years.
The plan began with heavy investment in research. Xu Guangxian, the "father of Chinese rare earths," developed cascade solvent extraction techniques in the 1970s that made separating the elements much more efficient. While American and French laboratories treated rare earths as an academic curiosity, China was building industrial capacity.
In the 1980s and 1990s, the Chinese government aggressively subsidized production. State-owned and private mining companies received cheap credit, tax exemptions, and virtually nonexistent environmental regulation. The goal was clear: drive down international prices until foreign competitors gave up.
The death of Mountain Pass and the Western collapse
It worked. The Mountain Pass mine in California, which accounted for nearly all global production in the 1960s, began to lose competitiveness in the 1990s. Prices plummeted as Chinese production flooded the market. In 1998, a radioactive waste spill forced the mine to suspend its processing operations. It closed in 2002. The owner company, Molycorp, attempted to reopen in 2012 but went bankrupt in 2015.
The story repeated in other countries. Mines in Australia, India, and South Africa closed or were left undeveloped. Not because the deposits were depleted, but because they could not compete with Chinese prices. It was strategic dumping — and the West, focused on quarterly profits, failed to see what was happening.
Meanwhile, China did not stop at mining. The next — and more important — step was to dominate processing. Mining rare earths is just the beginning. The real complexity lies in the separation and refining of the individual elements, a chemical process involving hundreds of solvent extraction steps. Throughout the 2000s, China built this industrial capacity almost entirely on its own. Today, even countries that mine rare earths — such as Australia and Myanmar — send the raw ore to China for processing.
2010: The embargo on Japan and the late awakening
The world only woke up to the situation in September 2010. After an incident involving a Chinese fishing boat and the Japanese Coast Guard near the Senkaku/Diaoyu islands, China informally cut off rare earth exports to Japan. Beijing never officially admitted to the embargo — calling it "logistical issues" — but the effect was immediate. Japan, dependent on rare earths for its electronics and automotive industries, panicked.
Prices soared. Neodymium oxide rose by more than 700% in just a few months. The crisis exposed a vulnerability that Western governments had ignored for two decades: a single country controlled access to materials essential for defense, energy, and technology.
Japan, the United States, and the European Union took the case to the World Trade Organization. In 2014, the WTO ruled against China, which was forced to suspend its export quotas. But the victory was partially hollow. China already had what it wanted: the processing chain was consolidated within its borders. Removing export quotas does not change the fact that 85% of the world's refining capacity is on Chinese territory.
The new generation of controls: gallium, germanium, and antimony
If anyone thought China had learned its lesson from 2010 and would stop using minerals as a geopolitical weapon, they were mistaken. What changed was the sophistication.
In July 2023, Beijing imposed export controls on gallium and germanium — essential semiconductors for chips, fiber optics, and military equipment. In October of the same year, it did the same with graphite, a key material for electric vehicle batteries. In 2024, it added antimony to the list — a mineral used in ammunition, flame retardants, and semiconductors.
Each of these restrictions was framed as a "national security" measure, mirroring the same language the United States used to justify its advanced chip export restrictions to China. The message was clear: you restrict us in semiconductors, we will restrict you in raw materials.
In 2025, with the escalation of the trade war under the Trump presidency, China further expanded its controls, adding restrictions on processed rare earths — specifically neodymium magnets and heavy rare earth compounds like dysprosium and terbium, which are critical for electric vehicle motors and weapon systems.
The environmental cost: the price no one was willing to pay
There is a reason the West ceded the rare earth monopoly to China beyond strategic myopia: the environmental cost of processing is brutal.
Mining and refining rare earths generate radioactive waste (due to thorium associated with the deposits), toxic acids, and enormous volumes of contaminated water. In the Baotou region of Inner Mongolia, there is an artificial lake of toxic waste visible from space — a reservoir of radioactive and acidic sludge that spans more than 10 square kilometers. Local communities report high rates of cancer, respiratory diseases, and aquifer contamination.
For decades, Chinese regulators turned a blind eye. The environmental cost was the hidden subsidy — by not enforcing environmental standards, China kept its production costs artificially low. Countries like the United States, Australia, and Canada, with stricter environmental regulations, simply could not compete.
In recent years, China has begun to tighten its own environmental regulations, consolidating hundreds of small, illegal mining operations into large state-owned enterprises. This served two purposes: to marginally improve environmental standards and, more importantly, to increase state control over production.
The race to break the monopoly
Since 2010, there have been dozens of announcements about projects to diversify the rare earth supply chain. The reality is that progress has been slow.
The United States reopened Mountain Pass under new management (MP Materials), but the mine still sends the bulk of its concentrate to China for processing. Australia developed the Lynas project, which processes rare earths in Malaysia — the only significant processor outside of China. Japan has heavily invested in recycling and seabed deposits. The European Union launched the Critical Raw Materials Act in 2023.
But building a complete processing chain — from mine to magnet — takes at least a decade, requires billions in investment, and runs into the environmental problem that no one wants in their own backyard. China had a 40-year head start. Recovering that ground does not happen with a decree.
Brazil, which holds the world's second-largest rare earth reserves, often appears as a potential alternative. But reserves are not production. The country lacks processing infrastructure, research investment, and, most importantly, a consistent industrial policy for the sector.
What this means for the future
China's rare earth monopoly is not just a matter of mining. It is a case study on how industrial power translates into geopolitical power. China identified a strategic resource before others, invested decades in building capacity, accepted environmental costs that others refused, and is now reaping the dividends.
The global dependence on Chinese rare earths is, in many ways, more dangerous than dependence on Middle Eastern oil. Oil has substitutes — nuclear, solar, wind. Rare earths, for now, do not. There is no electric vehicle motor without neodymium. There is no high-efficiency wind turbine without dysprosium. There are no guided missiles without samarium.
While the world debates tariffs and trade wars, the real board is in the elements of the periodic table that most people can't even pronounce. And on that board, China has been playing for 40 years with an advantage.
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